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Letter to the Editor: Mumbo-Jumbo Served with Dinar in Iraq

This article appeared in the Wall Street Journal. Copyright (c) 2005, Dow Jones & Company Inc.

Amir Taheri (“Guess Who’s Coming to Dinar,” editorial page, Sept. 14) leaves us with the impression that Iraq is on the brink of an economic renaissance. The centerpiece of his tale is the Iraqi dinar. According to Mr. Taheri, the dinar is pushing aside the U.S. dollar, the euro and the oil currencies of the region. It’s as if the dinar had morphed into another Deutsche mark.

Mr. Taheri supports his super-dinar assertion with information gleaned from Tehran’s moneychangers, registries for pilgrims traveling to Shiite holy sites in Iraq, smugglers and Shiite mullahs entrusted with the safety of religious funds. To lend credence to this folkloric mumbo jumbo, Mr. Taheri heavily interlards it with selective — and for the most part, irrelevant — data from the International Monetary Fund’s August Article IV Consultation report on Iraq.

But according to the IMF, “recent pressure on the exchange rate” was one of two issues that dominated its recent consultations with the Iraqi authorities. Why? “While the volume of dollar sales at the daily CBI [Central Bank of Iraq] foreign exchange auctions was relatively stable during 2004 and early 2005 at about $25 million per day, dollar sales increased sharply to about $50 million a day from mid-April” (p. 12). Further on: “the authorities wondered whether the increase in demand for dollars might emanate from increasing dollarization in certain regions” (p. 19). The IMF Staff Appraisal concludes that “the recent significant increase in the amount of dollars demanded at the CBI’s daily dollar auction over the past two months — which the CBI has not always satisfied in full — may signal a weakening of the demand for the dinar.”

Mr. Taheri’s claims about the super-dinar are literally fantastic. But what about his main thesis? Mr. Taheri declares: “The IMF speculates that within a decade Iraq could emerge as an engine of growth in the Middle East.” There is nothing of the kind in the IMF report. The “Medium-term Prospects and Vulnerabilities” section of the IMF report concludes that “Iraq’s medium term economic outlook appears satisfactory as long as the expansion in oil production proceeds without undue interruption and world oil prices remain at favorable levels.” However, the report indicates that the Iraqi authorities and the IMF staff think that this sober and qualified assessment faces “considerable downside risks.”